HSBC to Pay Record $1.9 Billion Fine in Money Laundering Case

HSBC has agreed to pay a record $1.92
billion fine to settle a multi-year probe by U.S. prosecutors,
who accused Europe's biggest bank of failing to enforce rules
designed to prevent the laundering of criminal cash.

has agreed to pay a record $1.92
billion fine to settle a multi-year probe by U.S. prosecutors,
who accused Europe's biggest bank of failing to enforce rules
designed to prevent the laundering of criminal cash.

HSBC Holdings Plc admitted to a breakdown
of controls and apologized in a statement on Tuesday announcing
it had reached a deferred-prosecution agreement with the U.S.
Department of Justice, as first reported by Reuters last week.

"We accept responsibility for our past mistakes. We have
said we are profoundly sorry for them, and we do so again. The
HSBC of today is a fundamentally different organization from the
one that made those mistakes," said Chief Executive Stuart
Gulliver.

"Over the last two years, under new senior leadership, we
have been taking concrete steps to put right what went wrong and
to participate actively with government authorities in bringing
to light and addressing these matters."

The deferred prosecution agreement, when detailed by U.S.
Justice Department officials later on Tuesday, could yield new
information about a failure at HSBC to police transactions
linked to Mexico, sources familiar with the matter said.

Details of those dealings were reported this summer in a
sweeping U.S. Senate probe. [ ID:n L2E8IGFJ5]

The Senate panel alleged that HSBC failed to maintain
controls designed to prevent money laundering by drug cartels,
terrorists and tax cheats, when ac tin g a s a financier to clients
routing funds from places including Mexico, Iran and Syria.

The bank was unable to properly monitor $15 billion in bulk
cash transactions between mid-2006 and mid-2009, and had
inadequate staffing and high turnover in its compliance units,
July's re port said.

HSBC on Tuesday said it expected to also reach a settlement
with British watchdog the Financial Services Authority. The FSA
declined to comment.

U.S. and European banks have now agreed to settlements with
U.S. regulators totaling some $5 billion in recent years on
charges they violated U.S. sanctions and failed to police
potentially illicit transactions.

No bank or bank executives, however, have been indicted, as
prosecutors have instead used deferred prosecutions - under
which criminal charges against a firm are set aside if it agrees
to conditions such as paying fines and changing behavior.

HSBC's settlement also includes agreements or consent orders
with the Manhattan district attorney, the Federal Reserve and
three U.S. Treasury Department units: the Office of Foreign
Assets Control, the Comptroller of the Currency and the
Financial Crimes Enforcement Network.

HSBC said it would pay $1.921 billion, continue to cooperate
fully with regulatory and law enforcement authorities and take
further action to strengthen its compliance policies and
procedures. U.S. prosecutors have agreed to defer or forego
prosecution.

The settlement is the third time in a decade that HSBC has
been penalized for lax controls and ordered by U.S. authorities
to better monitor suspicious transactions. Directives by
regulators to improve oversight came in 2003 and again in 2010.

Last month, HSBC told investors it had set aside $1.5
billion to cover fines or penalties stemming from the inquiry
and warned costs could be significantly higher.

Analyst Jim Antos of Mizuho Securities said the settlement
costs were "trivial" in terms of the company's book value.

"But in terms of real cash terms, that's a huge fine to
pay," said Antos, who rates HSBC a "buy".

HSBC shares dipped 0.3 percent in early London trading to
63 9 pe nce, in line with a slightly weaker European bank index
. I ts Ho ng Kong stock nudged up 0.3 percent to HK$79.70.

"It has been damaging for the brand, albeit not as bad as it
might have been," said Ian Gordon, analyst at Investec
Securities in London.

"Is it absorbable? Yes. Is it significant? Yes. But in the
absence of a broader attack on the business structure or
individuals, that explains why the market reaction has been
relatively muted today and has been since the allegations came
out," he added.